Optical stocks led by Acacia Communications, Inc. (NASDAQ: ACIA) were hit hard Monday morning after the U.S. government slapped a seven-year restriction on the sale of optical equipment by American companies to China's ZTE.

The Analyst

The Thesis

The U.S. government's decision to ban optical equipment sales to ZTE is a negative for Acacia given its 30-percent revenue exposure to the Chinese company in 2017, Genovese said in a Monday report.

The report is positive for NeoPhotonics Corp (NYSE: NPTN), which has "much smaller" exposure to ZTE and 40-percent exposure to Huawei, a rival to ZTE that will likely gain share and accelerate its inventory build at ZTE's expense, the analyst said.

Elsewhere, the-10 percent decline in Lumentum Holdings Inc (NASDAQ: LITE) represents a buying opportunity for investors given that its exposure to ZTE stands at 2 to 3 percent, Genovese said. There is also a "less clear" buying opportunity in Finisar Corporation (NASDAQ: FNSR), which is down 5 percent and has 10-15 percent exposure to Huawei, he said.

Finally, Oclaro Inc (NASDAQ: OCLR)'s stock is a buy below $8 per share, and Lumentum is unlikely to demand a change to its proposed takeover offer of around $10 per share, according to MKM Partners.

It is unlikely that the ZTE sanctions will have any impact on the Chinese regulatory approval process, Genovese said. China's government is unlikely to be "overly concerned" with the sanctions, since it is "closely associated" with Huawei — a company that ironically "strongly dislikes" ZTE, he said.

Price Action

Shares of Acacia Communications were down more than 35 percent at the time of publication midday Monday.